In today's increasingly competitive world market, the problem of allocating and maintaining available resources to, for example, manufacture or distribute selected products or items, has become the focus of considerable attention. The problem does not admit of simple solutions since there are typically many variables and often many potential solutions, a number of which may appear to be equally viable. On the manufacturing side, project management techniques assume that decisions have been made regarding resource allocation. For those industries where there is surplus capacity, decisions involved in resource allocation are relatively easy, but surplus capacity is a rare commodity in today's market-driven economies.
A number of books and articles have been published which address the issue of inventory costs, notably The Industry References Production-Inventory Systems, Planning and Control by Elwood S. Buffa, published by Richard D. Irwin, Inc. and Analysis of Inventory Systems by G. Hadley and T. M. Whitin, published by Prentiss-Howell International, Inc. See also, Material Requirements Planning by Joseph Orlicky, published by McGraw-Hill. Material Requirements Planning (MRP) is a system for translating demand for final products into raw material requirements. MRP is thus essentially an information system and a simulation tool designed to generate proposals for production schedules which managers can evaluate in terms of their feasibility and cost effectiveness. MRP does not, however, address optimization issues. An example of an MRP system is IBM's Computer Program Product, COPICS, which is currently in use in many manufacturing facilities.
There are presently a number of other existing logistics planning tools designed for use by inventory control personnel to select vendors, warehouse locations and transportation means and routes. For example, the computer-based Procurement Decision Support System (PDSS) developed by Bell Communications Research Corporation (Bellcore) has been used to reduce the costs of purchasing selected items on a large scale basis. As those skilled in the art will recognize, the PDSS system has been generally implemented in cooperation with a similar computer-based demand forecasting tool such as the Advanced Material Management System (AMMS) developed by American Software. The PDSS tool and those available like it have been found to be highly useful in recommending least-cost vendors for specific items or groups of items and in calculating order quantities to take advantage of business volume discounts. These systems do not, however, minimize the total costs of introducing items into ordering, storage and distribution systems.
Other known logistics planning tools have similarly been implemented by inventory managers yet fail to address the optimization issues solved by the present invention. See, for example, U.S. Pat. No. 5,216,593 issued to Dietrich et al. and assigned to International Business Machines Corporation. The '593 patent, entitled "Method and Apparatus for Discrete Activity Resource Allocation Through Cardinality Constrained Generation" is directed broadly to a computer implemented procedure for solving a Discrete Activity Resource Allocation (DARA) problem. More specifically, the '593 patent is directed to a logistics planning tool for collecting and assessing inventory and order data, generating and evaluating a production plan, and controlling execution of the plan through the interim generation of "cliques and covers."
U.S. Pat. No. 4,887,207 issued to Natarajan and also assigned to International Business Machines Corporation is similarly directed to an automated system for evaluating the sensitivity of inventory costs due to fluctuations in customer demand. More specifically, the '207 patent discloses a method and system for calculating work-in-process inventory costs which are required to manufacture selected products.
U.S. Pat. No. 4,646,238 issued to Carlson, Jr. et al. and assigned to Analog Devices, Inc. is directed to a material requirements planning system and procedures for use in process industries. The '238 patent is specifically directed to a system for controlling the flow of semiconductor products and their components through a production facility including assembly and final testing of a large number of different products with multiple product grades. As disclosed, the patent of the '238 system stores information on the demand and inventory of all product grades together with grade distribution data to provide the yield of all co-products of a product family from testing the common component of that family.
U.S. Pat. No. 5,101,352 issued to Rembert and assigned to Carolina Cipher is directed to a material requirements planning system. The '352 patent discloses an integrated MRP system for distributors, manufacturer and job shops. As disclosed, the '352 patent permits the user to define items which uniquely characterize the product for a customer order, purchase order or work order. The disclosed invention further permits the application of user-defined formulas which determine the quantity and/or size of a selected manufacturing part based on the selected options.
Finally, U.S. Pat. No. 5,193,065 issued to Guerindon et al. and assigned to Caterpillar, Inc. is directed to a system for requisitioning and distributing material in a manufacturing environment.
The total cost of an item as calculated by inventory control personnel is not just the unit purchasing cost, but rather, the sum of this as well as transportation costs (from the vendor to a selected company warehouse and from the warehouse to point of use), storage and inventory costs, ordering costs (e.g. for the time of contracting and purchasing agents), support, maintenance and repair costs, picking costs (in which items received in containers of one size must be picked out and repackaged for final distribution), and so on. Without addressing these additional costs, inventory control efforts have heretofore been decentralized. For example, a warehouse manager may order items in quantities that minimize the warehouse costs, even though this may increase the downstream picking and repackaging costs at a local distribution center. To properly account for all of the total costs involved in purchasing, shipping and storage, it would thus be desirable to have available a purchasing decision support system that will recommend globally optimal order quantities and schedules, vendor and storage locations, and transportation options so as to minimize the total costs to the user and facilitate improved inventory control strategies.